Economy

With the industrialization of Japan in the 19th century came the development of the so-called 'dual structure' (niju kozo). Large corporations provided lifetime employment, seniority wage systems and company-based unions to create stable working conditions which would attract the best employees. These corporations thrived by utilizing small and medium-sized companies in the zaibatsu or financial and industrial combines. An entire zaibatsu was under the control of the family running the parent holding company. The big four zaibatsu were Mitsui, Mitsubishi, Sumitomo and Yasuda, names still prominent today. Others include Nissan, Nomura and Furukawa (which included today's Fujitsu Ltd). Price discrimination against outside companies was common practice. They also exercised a lot of political influence through cash payment to parties and politicians. The smaller companies were at the mercy of the parent corporations and therefore less stable and attractive to employees. They tended to hire more women and unskilled workers, including foreigners. This trend continues to play a part in the Japanese economy.

Following World War II, holding companies and the zaibatsu system were abolished but companies remained loosely affiliated in keiretsu business groupings. As corporate funds came more from bank loans than shareholder equity, the kinyu keiretsu (a group of companies supported by the same bank; for example, the Sumitomo keiretsu) remained powerful, although lending between different keiretsu was much more common than under the old system. Following the Occupation (1945~52) and the Korean War (1950~53), Japan entered a period of unprecedented economic growth, known as the 'economic miracle'. By 1968, Japan had passed West Germany to become the No.2 market economy in the world. The government concentrated on developing, in turn, the textile, steel, shipbuilding, chemical and automobile industries. Factors such as the oil crises of 1973 and 1978, privitisation of the railways and telecommunications systems in the 80's and strengthening of the yen against the dollar affected the economy to varying degrees but it remained strong until the early 90's. Heavy foreign investment peaked at the end of the 80's with such prominent purchases as the Rockefeller Center in New York, CBS Records and Columbia Pictures.

Radical social changes also took place. Between 1950 and 1970, the number of people living in cities increased from 38 to 72 percent. Pollution became a serious problem that was largely ignored until the late 1960's. Universal social welfare was only introduced in 1970. But despite the changes and economic growth, the distribution of income remained even and no underclass developed.

The changing economic dynamics and deregulation of the 90's have had a profound effect on the financial system in Japan as well as distribution and employment trends. The discovery of payments by banks and securities firms to corporate racketeers forced regulators to impose severe punishments and led to the collapse of Yamaichi Securities, one of the 'Big Four' securities companies, in the mid-90's.

Major banks merged, went bankrupt or were bought by foreign companies. Late 2000 - early 2001 saw the formation of four so-called 'megabank' groups: Mizuho Holdings, Sumitomo Mitsui Banking Corp, United Financial of Japan (UFJ) Group Holdings, and Mitsubishi-Tokyo Financial Group. Four became three in 2005 when UFJ merged with Mitsubishi-Tokyo to form Mitsubishi UFJ Financial Group (MUFG).

Foreign businesses and investment have become more and more prominent, such as the partnership between Nissan and Renault or the acquisition of the Long-Term Credit Bank of Japan (now Shinsei Bank) by Ripplewood Holdings. Deregulation allowed insurance companies, for example, to move into areas previously closed to them and encouraged increased competition. One of the most surprising developments has been the alignment of companies from previously exclusive keiretsu groups. More and more people are doing part-time work, changing jobs or starting their own companies. Unemployment figures have become an object of concern but even the record high unemployment rate of 4.9 percent in 1999 was relatively low, given that the economy had been weak for a decade. A major problem for the future, and one that is shared by other developed countries, is Japan's rapidly aging population.

The last couple of years have a seen a few tentative signs of an economic recovery. Land prices in some areas, especially the major city centers, have shown increases. Employment has crept back up, though Japan now has a whole new "underclass" of part-time workers, described with words such as "arubaito" and "freeter".